2. A LETTER FROM THE CHAIRMAN
TO OUR SHAREHOLDERS:
It is gratifying to report to you that Interpublic continued to Operating margin of 5.3% compares very favorably to 2006. Net
show real progress during the past 12 months — in terms of both income applicable to common stockholders swung to
the quality of our professional offerings and our operating $131.3 million in 2007 from a loss of $79.3 million a year ago
performance. and represents a dramatic improvement from the substantial losses
Ultimately, the most important headline for 2007 was that we the company posted in 2005 and prior years. Earnings per diluted
posted the strongest financial results the company has seen since share was $0.26.
the beginning of this decade. The talent we have added throughout We were also successful in completing the remediation of every
our organization, the strategic decisions taken during the past year one of the company’s 18 material control weaknesses and achieving
and a relentless focus on financial infrastructure continued to be compliance with Sarbanes-Oxley standards. This will allow us to
key drivers of our turnaround. further reduce external costs and concurrently focus more of our
time and resources on improving profitability.
I am pleased to be in position to share this strong performance
OVERVIEW OF 2007 RESULTS
with you. The progress we made last year also gives us confidence
As a result of these actions, we saw a significant improvement that we can achieve our goals for the future.
in profitability, driven by organic revenue growth and improved
cost control. The business was cash flow positive. Net income and POWERFUL RANGE OF BRANDS
earnings per share were at the highest levels that we have seen since ADDRESS THE EVOLVING NEEDS OF MARKETERS
2000.
Organic revenue growth of 3.8% for the year demonstrated the The changes that are shaking up our industry are well
increasingly competitive nature of our offerings. Performance was documented. Media has become increasingly fragmented and
strong or improving across the portfolio and we saw client wins at a complex. Individual consumers control how, when and why they
broad cross-section of our agencies. It’s worth noting that we interact with the messages we create. We’ve entered an era of
brought the year in very close to the high end of the range of technology-enabled marketing that is more addressable and
growth expectations that was in place for IPG going into 2007. accountable every day. In this evolving landscape, there is both
1
TH E IN TE R P U B L IC GR O U P O F C OM PA N I ES 20 07 A N N UA L R EP O RT
3. HIGH GROWTH COMPETENCIES AND MARKETS
risk and opportunity. Because marketers are looking to us for
guidance as they seek to engage with prospective customers
Our increased focus on emerging digital media has led us to
across countless channels in the digital world.
determine that, going forward, digital expertise must be embedded
To deliver customized solutions that meet these evolving client
within each of our companies. This includes the major global
needs, every one of our companies has begun to adapt by
networks, their aligned media partners and our
developing new tools, new structures and a new model for the
U.S. independents, which provide total communications
business. As a result, we believe that our portfolio of powerful
solutions to their clients and showed very strong performance in
brands will continue to play an important part in the conversation
2007.
between marketers and consumers.
Digital know-how is also being incorporated at our marketing
McCann Worldgroup remains a force to be reckoned with
services companies, which are combining their core competency
among the global, full-service marketing networks that partner
with extensions in areas such as social networking, the creation and
with major multinationals. The investments in talent that we management of digital assets, targeted mobile marketing and
have made at McCann, Momentum and MRM during the past digital analytic capabilities. Of course, we will also continue to
few years have helped take each of these agencies’ game to the support and develop leading-edge specialist digital capabilities
highest level. Their ability to deliver integrated programs, which such as R/GA, to build alliances with technology companies
often include other IPG marketing services companies, is second to such as Facebook and Joost, and to deliver thought leadership in
none. This was evident in the Worldgroup’s financial and new digital marketing with initiatives such as our Emerging Media Lab.
business results in 2007. In 2007, we took significant steps to cement our leadership
Marketing services is a high growth sector of our business and position in India by acquiring the remaining stakes in both Lowe
we have world-class capabilities in areas such as public relations, Lintas and FCB Ulka. Both are outstanding agencies and long-time
experiential marketing, branding and design, as well as sports Interpublic partners who bring our clients great insight and
creativity across the full range of marketing disciplines.
marketing. The companies in our CMG group — Weber
Going forward, we will remain focused on the important BRIC
Shandwick, Golin Harris, Jack Morton, FutureBrand and
markets, the Middle East and on digital. Targeted M&A activity,
Octagon — also distinguished themselves last year.
coupled with continued investment in talent, should help us to both
During 2007, the merger of Draft and FCB was completed with
meet the needs of our clients and capitalize on the attractive growth
minimal client loss due to conflict. The agency rolled up its sleeves
rates in these emerging areas of the business.
and rolled out its innovative new model around the world. This new
approach combines the accountability of behavior-based marketing
A TURNAROUND IN PROGRESS
with the creativity of traditional advertising, under a unified
leadership team and P&L. We are seeing Draftfcb’s offering
Our turnaround efforts began in 2005, when our company was
gain traction in the marketplace and believe the agency is poised
losing money and market share. We lacked the clear and
for success in 2008 and beyond.
compelling direction that we have today. Our control
Similarly, we see Lowe showing clear signs of progress. Its
environment was seriously compromised. Yet, instead of
“High Value Ideas” positioning draws on the agency’s strong
applying superficial solutions to what were fundamental
creative heritage and a powerful new strategic process, as well
problems, we chose to address our issues with seriousness and
as a geographic focus on a dozen key world markets. As a result,
purpose. First, we aggressively attacked weak financial controls.
Lowe has begun to reclaim significant share with its largest clients Although this carried extremely high short-term costs and put our
and compete effectively for new business. company in the spotlight, it was the only way to truly fix a very
The implementation and evolution of the aligned media strategy serious situation and ensure the company’s long-term viability. At
introduced at the end of 2006 contributed to dramatically improved the same time, we did not shy away from investing in our talent
performance at our media agencies in 2007. Both Initiative and base, so as to re-invigorate the offerings at many of our agencies.
Universal McCann won major accounts in fiercely contested Entering 2006, we continued with these efforts and began to see
reviews and also posted very positive financial results. Strong the early results, as both organic revenue growth and operating
leadership and investment behind communications planning and margin moved into slightly positive territory. We took action to
digital competencies will further elevate the quality of our media improve the company’s capital structure and enhance our financial
product. flexibility. The cost of moving toward Sarbanes-Oxley compliance
2 T H E I N TE R P UB LI C G R O U P O F C OM PA N IE S 20 07 A N NUA L R EP O RT
4. remained painfully high, but we pressed on and chose to elevate the As always, we thank you for your support.
company’s business practices, governance and disclosure to the Sincerely,
highest level of transparency. We also reiterated our commitment,
and continued to invest behind efforts aimed at improving diversity
and inclusion across our company.
As we headed into 2007, we focused on strategic solutions for
our most vulnerable units. Some of these have involved new agency
Michael I. Roth
models that make our offerings responsive to the evolving realities
Chairman and Chief Executive Officer
of increasingly digital, integrated and accountable marketing. We
resumed M&A activity in high-growth areas and geographies. And
we prepared to make operational cost discipline a top priority, in
anticipation of SOX compliance.
We have come very far in a very short time. Our internal control
challenges are now behind us. We have attracted and developed top
talent and have provided our agency leaders with the resources
required to build strong operating brands. We’ve been successful in
transitioning the company from a focus on stabilization to a
resumption of growth.
The swing in profitability and organic revenue growth that we
have achieved from 2005 to 2007 is dramatic, and all the more
remarkable given the magnitude of the other issues Interpublic has
had to confront, as well as the inherently volatile nature of a
professional services business.
LOOKING FORWARD
We are moving into 2008 with positive momentum. Our
agencies have been winning in the new business arena and we
remain committed to our plan, which calls for competitive organic
revenue performance and operating margin in the range of eight and
a half to nine percent in 2008.
Like our peers and every type of business at this juncture, we are
monitoring the broader economic situation closely, both in the
United States and internationally. Barring a significant, large-scale
slowdown, we believe that our 2007 results and the strength and
vitality of our agencies point to a future for IPG that is brighter than
it has been for some time.
The progress we have made is a testament to the talent and
dedication of our people, around the world. We thank them for their
continued efforts in driving Interpublic forward. And we remain
committed to doing our part to deliver on our goals — by staying
focused on serving our clients, building on our top line progress and
further addressing costs. That is what’s required to produce the
kinds of results that will lead to enhanced shareholder value.
3
TH E IN TE R P U B L IC GR O U P O F C OM PA N I ES 20 07 A N N UA L R EP O RT
5. BOARD OF DIRECTORS EXECUTIVE OFFICERS CORPORATE HEADQUARTERS FORM 10-K
1114 Avenue of the Americas A copy of the Company’s annual report
MICHAEL I. ROTH
MICHAEL I. ROTH
New York, NY 10036 (Form 10-K) to the Securities and
(2002) 3 Chairman &
Chairman & (212) 704-1200 Exchange Commission may be obtained
Chief Executive Officer
Chief Executive Officer without charge by writing to:
FRANK MERGENTHALER
FRANK J. BORELLI TRANSFER AGENT & REGISTRAR Nicholas J. Camera,
Executive Vice President,
(1995) 3 FOR COMMON STOCK
Chief Financial Officer Senior Vice President,
Retired Chief Financial
General Counsel & Secretary,
BNY Mellon Shareowner Services
NICHOLAS J. CAMERA
Officer & Director,
The Interpublic Group of
480 Washington Boulevard
Marsh & McLennan Senior Vice President,
Companies, Inc.
Jersey City, NJ 07310
Companies, Inc. General Counsel and Secretary
1114 Avenue of the Americas
Stock of The Interpublic Group
REGINALD K. BRACK THOMAS A. DOWLING New York, NY 10036
of Companies, Inc., is traded on
(1996) 2, 3, 4
Senior Vice President, Chief Risk Officer the New York Stock Exchange
Former Chairman & Exhibits to the annual report will also be
At February 15, 2008, there were
Chief Executive Officer, PHILIPPE KRAKOWSKY furnished, but will be sent only upon
Time, Inc. 24,025 shareholders of record.
Executive Vice President, payment of the Company’s reasonable
Strategy and Corporate Relations
JOCELYN CARTER – MILLER expense in furnishing them.
(2007) 2 ANNUAL MEETING
TIMOTHY A. SOMPOLSKI
President
The annual meeting will be held on
Executive Vice President, SHARE OWNER INTERNET
TechEd Ventures
Chief Human Resources Officer May 22, 2008 at 9:30 am at: ACCOUNT ACCESS
JILL M. CONSIDINE Paley Center for Media
CHRISTOPHER CARROLL Share owners of record may access their
(1997) 2, 3, 4 25 West 52nd Street
account via the Internet. By accessing
Senior Vice President, Controller
Chairman &
New York, NY 10019
and Chief Accounting Officer
Former Chief Executive Officer, their account they may view share
The Depository Trust balances, obtain current market price of
& Clearing Corporation AUTOMATIC DIVIDEND shares, historical stock prices, and the
REINVESTMENT PLAN
RICHARD A. GOLDSTEIN total value of their investment. In
addition, they may sell or request
(2001) 1, 3, 4 An Automatic Dividend Reinvestment
Presiding Director issuance of dividend and cash
Plan is offered to all shareholders of
Former Chairman & Chief investment plan shares.
record. The Plan, which is
Executive Officer,
administered by BNY Mellon For information on how to access this
International Flavors &
Shareowner Services, provides a way
Fragrances Inc. secure site, please call BNY Mellon
to acquire additional shares of Shareowner Services toll free at
H. JOHN GREENIAUS Interpublic Common Stock in a (800) 522-6645, or
(2001) 1, 2
systematic and convenient manner that visit www.melloninvestor.com
Former Chairman &
affords savings in commissions for
Chief Executive Officer,
Outside the US, call (201) 329-8660
most shareholders. Those interested in
Nabisco, Inc.
participating in this plan are invited to For hearing impaired: (800) 231-5469
MARY J. STEELE GUILFOILE write for details and an authorization
(2007) 1
form to:
Chairman
E-MAIL: shrrelations@bnymellon.com
MG Advisors, Inc. BNY Mellon Shareowner Services
INTERNET: www.melloninvestor.com
WILLIAM T. KERR Attn: Shareholder Relations
P.O. Box 3338
(2006) 1, 2
Chairman & Former Chief South Hackensack
For more information regarding The
Executive Officer, NJ 07606-1917
Interpublic Group of Companies, visit
Meredith Corporation
its Web site at www.interpublic.com.
J. PHILLIP SAMPER
(1990) 1, 4
Managing Director,
Gabriel Venture Partners
DAVID M. THOMAS
(2004) 1, 4
Executive Chairman &
Former Chairman & Chief
Executive Officer,
IMS Health Inc.
(Year Elected)
1 Audit Committee
2 Compensation Committee
3 Executive Policy Committee
4 Corporate Governance Committee
4 TH E IN TE R P U B L IC GR O U P O F C OM PA N IE S 20 07 A N NUA L R EP O RT
6. UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
¥ ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
Commission file number 1-6686
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1024020
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1114 Avenue of the Americas, New York, New York 10036
(Address of principal executive offices) (Zip Code)
(212) 704-1200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.10 par value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ¥ No n
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes n No ¥
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing requirements for at least the past
90 days. Yes ¥ No n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. n
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¥ Accelerated filer n Non-accelerated filer n Smaller reporting company n
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes n No ¥
As of June 29, 2007, the aggregate market value of the shares of registrant’s common stock held by non-affiliates was
$5,372,567,216. The number of shares of the registrant’s common stock outstanding as of February 15, 2008 was
471,152,044.
DOCUMENTS INCORPORATED BY REFERENCE
The following sections of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2008
are incorporated by reference in Part III: “Election of Directors,” “Director Selection Process,” “Code of Conduct,”
“Principal Committees of the Board of Directors,” “Audit Committee,” “Section 16(a) Beneficial Ownership Reporting
Compliance,” “Compensation of Executive Officers,” “Non-Management Director Compensation,” “Compensation
Discussion and Analysis,” “Compensation Committee Report,” “Outstanding Shares,” “Review and Approval of
Transactions with Related Persons,” “Director Independence” and “Appointment of Independent Registered Public
Accounting Firm.”
8. STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This annual report on Form 10-K contains forward-looking statements. Statements in this report that are
not historical facts, including statements about management’s beliefs and expectations, constitute forward-
looking statements. These statements are based on current plans, estimates and projections, and are subject to
change based on a number of factors, including those outlined in this report under Item 1A, Risk Factors.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update
publicly any of them in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could
cause actual results to differ materially from those contained in any forward-looking statement. Such factors
include, but are not limited to, the following:
• our ability to attract new clients and retain existing clients;
• our ability to retain and attract key employees;
• risks associated with assumptions we make in connection with our critical accounting estimates;
• potential adverse effects if we are required to recognize impairment charges or other adverse
accounting-related developments;
• potential adverse developments in connection with the ongoing Securities and Exchange Commission
(“SEC”) investigation;
• risks associated with the effects of global, national and regional economic and political conditions,
including fluctuations in economic growth rates, interest rates and currency exchange rates; and
• developments from changes in the regulatory and legal environment for advertising and marketing and
communications services companies around the world.
Investors should carefully consider these factors and the additional risk factors outlined in more detail in
Item 1A, Risk Factors, in this report.
3
9. PART I
Item 1. Business
The Interpublic Group of Companies, Inc. was incorporated in Delaware in September 1930 under the
name of McCann-Erickson Incorporated as the successor to the advertising agency businesses founded in 1902
by A.W. Erickson and in 1911 by Harrison K. McCann. The Company has operated under the Interpublic
name since January 1961.
About Us
We are one of the world’s premier advertising and marketing services companies. Our agency brands
deliver custom marketing solutions to many of the world’s largest marketers. Our companies cover the
spectrum of marketing disciplines and specialties, from consumer advertising and direct marketing to mobile
and search engine marketing.
The work we produce for our clients is specific to their unique needs. Our solutions vary from project-
based activity involving one agency and its client to long-term, fully-integrated campaigns created by a group
of our companies working together on behalf of a client. With offices in over 100 countries, we can operate in
a single region or align work globally across all major world markets.
The role of the holding company is to provide resources and support to ensure that our agencies can best
meet our clients’ needs. Based in New York City, Interpublic sets company-wide financial objectives and
corporate strategy, directs collaborative inter-agency programs, establishes financial management and
operational controls, guides personnel policy, conducts investor relations and initiates, manages and approves
mergers and acquisitions. In addition, we provide limited centralized functional services that offer our
companies operational efficiencies, including accounting and finance, marketing information retrieval and
analysis, legal services, real estate expertise, travel services, recruitment aid, employee benefits and executive
compensation management.
To keep our company well-positioned, we support our agencies’ initiatives to expand their high-growth
capabilities and build their offerings in key developing markets. When appropriate, we also develop
relationships with companies that are building leading-edge marketing tools that complement our agencies and
the programs they are developing for clients. In addition, we look for opportunities within our company to
modernize operations through mergers, strategic alliances and the development of internal programs that
encourage intra-company collaboration.
Market Strategy
We have taken several strategic steps in recent years to position our agencies as leaders in the global
advertising and communications market. We operate in a media landscape that has vastly changed over the last
few years. Media markets continue to fragment and clients face an increasingly complex consumer culture.
To stay ahead of these challenges and to achieve our objectives, we have invested in creative talent in
high-growth areas and have realigned a number of our capabilities to meet market demand. At our McCann
Worldgroup unit, we have continued to invest in talent and in upgrading the group’s integrated marketing
services offering at MRM, Momentum and McCann Healthcare. We combined accountable marketing and
consumer advertising agencies to form the unique global offering Draftfcb. And at our marketing services
group, Constituency Management Group (“CMG”), we continue to strengthen our public relations and events
marketing specialists.
We have also taken a unique approach to our media offering by aligning our largest media assets with
global brand agencies. This approach ensures that the ideas we develop for clients work across new media as
well as traditional channels. In 2007, this differentiated media strategy gained significant traction in the
marketplace.
4
10. The digital component of our business continues to evolve and is increasingly vital to all of our agencies.
In order to grow with our clients, we have accelerated our investment in talent, professional training and
technology throughout the organization. This reflects our strongly held belief that digital marketing is not a
silo. Instead, digital capabilities must reside in all of our assets. For example, our public relations companies
increasingly use blogs and social networking sites to influence consumer opinion, while our special events
companies use digital kiosks and website surveys to gauge audience response. Recruiting and developing
digitally conversant talent at all our agencies and in all marketing disciplines is therefore a priority and an
area where we must be willing to invest. Strong, multi-channel talent is vital if we are to continue building
long-term relationships with our clients.
Where necessary, we have acquired or built specialty digital assets, such as Reprise Media (search engine
marketing), The Interpublic Emerging Media Lab, and Ansible (mobile marketing), to meet the changing
needs of our clients. R/GA, a stand-alone digital agency, is an industry leader in the development of award-
winning interactive campaigns for global clients. All of these specialty assets have unique capabilities and
serve as key digital partners to many of our agencies within the group.
Likewise, we continue to look for strategic investments that give us a leadership position in emerging
markets. Recent investments in India, where we operate three leading agency networks, and Brazil give our
clients a strong foot-hold in these high-growth developing markets. Our partner in Russia is the acknowledged
advertising leader in the country. In China, we continue to invest in our existing companies in the market,
building on our decades-long commercial history.
We believe that our market strategy and offerings can improve our organic revenue growth and operating
income margin, with our ultimate objective to be fully competitive with our industry peer group on both
measures. To further improve our operating margin we continue to focus on actively managing staff costs in
non-revenue supporting roles; improving financial systems and back-office processing; reducing organizational
complexity and rationalizing our portfolio by divesting non-core and underperforming businesses; and
improving our real estate utilization.
Our Offering
Interpublic is home to some of the world’s best known and most innovative communications specialists.
We have three global brands that provide integrated, large-scale solutions for clients: McCann Worldgroup
(“McCann”), Draftfcb, and Lowe Worldwide (“Lowe”), as well as our domestic integrated agencies and media
agencies.
• McCann offers best-in-class communications tools and resources to many of the world’s top companies
and most famous brands. We believe McCann is exceptionally qualified to meet client demands, in all
regions of the world and in all marketing disciplines, through its operating units: McCann Erickson
Advertising, with operations in over 100 countries; MRM Worldwide for relationship marketing and
digital expertise; Momentum Worldwide for experiential marketing; and McCann Healthcare Worldwide
for healthcare communications.
• Launched in 2006, Draftfcb is a modern agency model for clients seeking creative and accountable
marketing programs. With more than 130 years of expertise, the company has its roots in both
consumer advertising and behavioral, data-driven direct marketing. We believe the agency is the first
global, behavior-based, creative and accountable marketing communications organization operating as a
financially and structurally integrated business unit.
• Lowe is a premier creative agency that operates in the world’s largest advertising markets. Lowe is
focused on delivering and sustaining high-value ideas for some of the world’s largest clients. The
quality of the agency’s product is evident in its global creative rankings and its standing in major
markets. By partnering with Interpublic’s marketing services companies, Lowe generates and executes
ideas that are frequently recognized for effectiveness, amplified by smart communication channel
planning.
5
11. • Our domestic independent agencies include some of the larger full-service agency brands, Campbell-
Ewald, Campbell Mithun, Deutsch, Hill Holliday, The Martin Agency and Mullen. The integrated
marketing programs created by this group have helped build some of the most powerful brands in the
U.S., across all sectors and industries.
• We have exceptional marketing specialists across a range of channels. These include FutureBrand
(corporate branding), Jack Morton (experiential marketing), Octagon (sports marketing), public relations
specialists like WeberShandwick and Golin Harris, and best-in-class digital agencies, led by R/GA. Our
healthcare communications specialists reside within our three global brands, McCann, Draftfcb and
Lowe.
• We also have two global media agencies, Initiative and Universal McCann, which provide specialized
services in media planning and buying, market intelligence and return-on-marketing investment analysis
for clients. Initiative and Universal McCann operate independently but work alongside Draftfcb and
McCann Erickson, respectively. Aligning the efforts of our major media and our integrated
communications networks improves cross-media communications and our ability to deliver integrated
marketing programs.
Interpublic lists approximately 90 companies on our website’s “Company Finder” tool, with descriptions
and office locations for each. To learn more about our broad range of capabilities, visit www.interpublic.com.
Information on our website is not part of this report.
Financial Reporting Segments
We have two reportable segments: Integrated Agency Network (“IAN”), which is comprised of McCann,
Draftfcb and Lowe, our media agencies and our leading stand-alone agencies, and CMG, which is comprised
of the bulk of our specialist marketing service offerings. We also report results for the “Corporate and other”
group. See Note 15 to the Consolidated Financial Statements for further discussion.
Principal Markets
Our agencies are located in over 100 countries, including every significant world market. We provide
services for clients whose businesses are broadly international in scope, as well as for clients whose businesses
are limited to a single country or a small number of countries. The U.S., Europe (excluding the U.K.), the
U.K., Asia Pacific and Latin America represented 55.7%, 16.5%, 9.0%, 8.9% and 4.8% of our total revenue,
respectively, in 2007. For further discussion concerning revenues and long-lived assets on a geographical basis
for each of the last three years, see Note 15 to the Consolidated Financial Statements.
Sources of Revenue
Our revenues are primarily derived from the planning and execution of advertising programs in various
media and the planning and execution of other marketing and communications programs. Most of our client
contracts are individually negotiated and accordingly, the terms of client engagements and the basis on which
we earn commissions and fees vary significantly. Our client contracts are complex arrangements that may
include provisions for incentive compensation and govern vendor rebates and credits. Our largest clients are
multinational entities and, as such, we often provide services to these clients out of multiple offices and across
various agencies. In arranging for such services to be provided, we may enter into global, regional and local
agreements.
Revenues for creation, planning and placement of advertising are determined primarily on a negotiated
fee basis and, to a lesser extent, on a commission basis. Fees are usually calculated to reflect hourly rates plus
proportional overhead and a mark-up. Many clients include an incentive compensation component in their total
compensation package. This provides added revenue based on achieving mutually agreed-upon qualitative
and/or quantitative metrics within specified time periods. Commissions are earned based on services provided,
and are usually derived from a percentage or fee over the total cost to complete the assignment. Commissions
can also be derived when clients pay us the gross rate billed by media and we pay for media at a lower net
6
12. rate; the difference is the commission that we earn, which is either retained in total or shared with the client
depending on the nature of the services agreement.
We pay the media charges with respect to contracts for advertising time or space that we place on behalf
of our clients. To reduce our risk from a client’s non-payment, we typically pay media charges only after we
have received funds from our clients. Generally, we act as the client’s agent rather than the primary obligor. In
some instances we agree with the media provider that we will only be liable to pay the media after the client
has paid us for the media charges.
We also generate revenue in negotiated fees from our public relations, sales promotion, event marketing,
sports and entertainment marketing and corporate and brand identity services.
Our revenue is directly dependent upon the advertising, marketing and corporate communications
requirements of our clients and tends to be higher in the second half of the calendar year as a result of the
holiday season and lower in the first half as a result of the post-holiday slow-down in client activity.
Consolidated Revenues for the Three Months Ended
2007 2006 2005
March 31 . . . . . . . . . . . . . . . . . . . . $1,359.1 20.7% $1,327.0 21.4% $1,328.2 21.2%
June 30 . . . . . . . . . . . . . . . . . . . . . 1,652.7 25.2% 1,532.9 24.8% 1,610.7 25.7%
September 30 . . . . . . . . . . . . . . . . . 1,559.9 23.8% 1,453.8 23.5% 1,439.7 22.9%
December 31 . . . . . . . . . . . . . . . . . 1,982.5 30.3% 1,877.1 30.3% 1,895.7 30.2%
$6,554.2 $6,190.8 $6,274.3
Depending on the terms of the client contract, fees for services performed can be recognized in three
principal ways: proportional performance, straight-line (or monthly basis) or completed contract. Fee revenue
recognized on a completed contract basis also contributes to the higher seasonal revenues experienced in the
fourth quarter because the majority of our contracts end at December 31. As is customary in the industry, our
contracts generally provide for termination by either party on relatively short notice, usually 90 days. See
Note 1 to the Consolidated Financial Statements for further discussion of our revenue recognition accounting
policies.
Clients
One of the benefits of the holding company structure is that our agencies can work with a variety of
clients from competing sectors. In the aggregate, our top ten clients based on revenue accounted for
approximately 26% of revenue in 2007 and 2006. Based on revenue for the year ended December 31, 2007,
our largest clients were General Motors Corporation, Microsoft, Johnson & Johnson, Unilever and Verizon.
While the loss of the entire business of any one of our largest clients might have a material adverse effect
upon our business, we believe that it is unlikely that the entire business of any of these clients would be lost at
the same time. This is because we represent several different brands or divisions of each of these clients in a
number of geographic markets, as well as provide services across multiple advertising and marketing
disciplines, in each case through more than one of our agency systems. Representation of a client rarely means
that we handle advertising for all brands or product lines of the client in all geographical locations. Any client
may transfer its business from one of our agencies to a competing agency, and a client may reduce its
marketing budget at any time.
Personnel
As of December 31, 2007, we employed approximately 43,000 persons, of whom approximately 19,000
were employed in the U.S. Because of the service character of the advertising and marketing communications
business, the quality of personnel is of crucial importance to our continuing success. There is keen
competition for qualified employees.
7
13. Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to these reports, will be made available, free of charge, at our website at http://
www.interpublic.com, as soon as reasonably practicable after we electronically file such reports with, or
furnish them to, the SEC.
Our Corporate Governance Guidelines, Code of Conduct and the charters for each of the Audit
Committee, Compensation Committee and the Corporate Governance Committee are available free of charge
on our website at http://www.interpublic.com, or by writing to The Interpublic Group of Companies, Inc.,
1114 Avenue of the Americas, New York, New York 10036, Attention: Secretary. Information on our website
is not part of this report.
Item 1A. Risk Factors
We are subject to a variety of possible risks that could adversely impact our revenues, results of
operations or financial condition. Some of these risks relate to the industry in which we operate, while others
are more specific to us. The following factors set out potential risks we have identified that could adversely
affect us. The risks described below may not be the only risks we face. Additional risks that we do not yet
know of, or that we currently think are immaterial, could also impair our business operations or financial
condition. See also Statement Regarding Forward-Looking Disclosure.
• Ongoing SEC investigations regarding our accounting restatements could adversely affect us.
Since January 2003 the SEC has been conducting a formal investigation in response to the restatement we
first announced in August 2002, and in 2005 the investigation expanded to encompass the restatement we
presented in our Annual Report on Form 10-K for the year ended December 31, 2004 that we filed in
September 2005. We have also responded to inquiries from the SEC staff concerning the restatement of the
first three quarters of 2005 that we made in our 2005 Annual Report on Form 10-K. We continue to cooperate
with the investigation. We expect that the investigation will result in monetary liability, but as settlement
discussions have not yet commenced, we cannot reasonably estimate the amount, range of amounts or timing
of a resolution. Accordingly, we have not yet established any provision relating to these matters.
The SEC staff has informed us that it intends to seek approval from the Commission to enter into
settlement discussions with us or, failing a settlement, to litigate an action charging the Company with various
violations of the federal securities laws. In that connection, and as previously disclosed in our current report
on Form 8-K filed June 14, 2007, the staff sent us a “Wells notice,” which invited us to make a responsive
submission before the staff makes a final determination concerning its recommendation to the Commission.
We expect to discuss settlement with the staff once the Commission authorizes the staff to engage in such
discussions. We cannot at this time predict what the Commission will authorize or the outcome of any
settlement negotiations.
• We operate in a highly competitive industry.
The marketing communications business is highly competitive. Our agencies and media services must
compete with other agencies, and with other providers of creative or media services, in order to maintain
existing client relationships and to win new clients. Our competitors include not only other large multinational
advertising and marketing communications companies, but also smaller entities that operate in local or
regional markets. New market participants include systems integrators, database marketing and modeling
companies, telemarketers and internet companies.
The client’s perception of the quality of an agency’s creative work, our reputation and the agencies’
reputations are important factors in determining our competitive position. An agency’s ability to serve clients,
particularly large international clients, on a broad geographic basis is also an important competitive
consideration. On the other hand, because an agency’s principal asset is its people, freedom of entry into the
business is almost unlimited and a small agency is, on occasion, able to take all or some portion of a client’s
account from a much larger competitor.
8
14. Many companies put their advertising and marketing communications business up for competitive review
from time to time. We have won and lost client accounts in the past as a result of such periodic competitions.
In the aggregate, our top ten clients based on revenue accounted for approximately 26% of revenue in 2007.
While we believe it unlikely that we would lose the entire business of any one of our largest clients at the
same time, a substantial decline in such a client’s advertising and marketing spending, or the loss of its entire
business, could have a material adverse effect upon our business and results of operations.
Our ability to attract new clients and to retain existing clients may also, in some cases, be limited by
clients’ policies or perceptions about conflicts of interest. These policies can, in some cases, prevent one
agency, or even different agencies under our ownership, from performing similar services for competing
products or companies.
• We may lose or fail to attract and retain key employees and management personnel.
Employees, including creative, research, media, account and practice group specialists, and their skills
and relationships with clients, are among our most important assets. An important aspect of our
competitiveness is our ability to attract and retain key employees and management personnel. Our ability to do
so is influenced by a variety of factors, including the compensation we award, and could be adversely affected
by our recent financial or market performance.
• As a marketing services company, our revenues are highly susceptible to declines as a result of
unfavorable economic conditions.
Economic downturns often more severely affect the marketing services industry than other industries. In
the past, some clients have responded to weak economic performance in any region where we operate by
reducing their marketing budgets, which are generally discretionary in nature and easier to reduce in the short-
term than other expenses related to operations. This pattern may recur in the future.
• Downgrades of our credit ratings could adversely affect us.
Our long-term debt is currently rated Ba3 with stable outlook by Moody’s, B with positive outlook by
Standard and Poor’s, and BB- with stable outlook by Fitch. Any ratings downgrades or comparatively weak
ratings can adversely affect us, because ratings are an important factor influencing our ability to access capital
and the terms of any new indebtedness, including covenants and interest rates. Our clients and vendors may
also consider our credit profile when negotiating contract terms, and if they were to change the terms on
which they deal with us, it could have an adverse effect on our liquidity.
• Our liquidity profile could be adversely affected.
In previous years, we have experienced operating losses and weak operating cash flow. Until our margins
consistently improve in connection with our turnaround, cash generation from operations could be challenged
in certain periods. This could have a negative impact on our liquidity in future years and could lead us to seek
new or additional sources of liquidity to fund our working capital needs. There can be no guarantee that we
would be able to access any new sources of liquidity on commercially reasonable terms or at all. If we were
unable to do so, our liquidity position could be adversely affected.
• If some of our clients experience financial distress, their weakened financial position could
negatively affect our own financial position and results.
We have a large and diverse client base, and at any given time, one or more of our clients may
experience financial distress, file for bankruptcy protection or go out of business. If any client with whom we
have a substantial amount of business experiences financial difficulty, it could delay or jeopardize the
collection of accounts receivable, may result in significant reductions in services provided by us and may have
a material adverse effect on our financial position, results of operations and liquidity. For a description of our
client base, see Item 1, Business — Clients.
9
15. • International business risks could adversely affect our operations.
International revenues represent a significant portion of our revenues, approximately 44% in 2007. Our
international operations are exposed to risks that affect foreign operations of all kinds, including local
legislation, monetary devaluation, exchange control restrictions and unstable political conditions. These risks
may limit our ability to grow our business and effectively manage our operations in those countries. In
addition, because a significant portion of our business is denominated in currencies other than the U.S. dollar,
such as the Euro, Pound Sterling, Canadian Dollar, Brazilian Real, Japanese Yen and South African Rand,
fluctuations in exchange rates between the U.S. dollar and such currencies may materially affect our financial
results.
• In 2006 and prior years, we recognized impairment charges and increased our deferred tax valuation
allowances, and we may be required to record additional charges in the future related to these
matters.
We evaluate all of our long-lived assets (including goodwill, other intangible assets and fixed assets),
investments and deferred tax assets for possible impairment or realizability at least annually and whenever
there is an indication of impairment or lack of realizability. If certain criteria are met, we are required to
record an impairment charge or valuation allowance. In the past, we have recorded substantial amounts of
goodwill, investment and other impairment charges, and have been required to establish substantial valuation
allowances with respect to deferred tax assets and loss carry-forwards.
As of December 31, 2007, we have substantial amounts of long-lived assets, investments and deferred tax
assets on our Consolidated Balance Sheet. Future events, including our financial performance and strategic
decisions, could cause us to conclude that further impairment indicators exist and that the asset values
associated with long-lived assets, investments and deferred tax assets may have become impaired. Any
resulting impairment loss would have an adverse impact on our reported earnings in the period in which the
charge is recognized.
• We may not be able to meet our performance targets and milestones.
From time to time, we communicate to the public certain targets and milestones for our financial and
operating performance including, but not limited to, the areas of revenue and operating margin growth. These
targets and milestones are intended to provide metrics against which to evaluate our performance, but they
should not be understood as predictions or guidance about our expected performance. Our ability to meet any
target or milestone is subject to inherent risks and uncertainties, and we caution investors against placing
undue reliance on them. See “Statement Regarding Forward-Looking Disclosure.”
• We are subject to regulations and other governmental scrutiny that could restrict our activities or
negatively impact our revenues.
Our industry is subject to government regulation and other governmental action, both domestic and
foreign. There has been an increasing tendency on the part of advertisers and consumer groups to challenge
advertising through legislation, regulation, the courts or otherwise, for example on the grounds that the
advertising is false and deceptive or injurious to public welfare. Through the years, there has been a
continuing expansion of specific rules, prohibitions, media restrictions, labeling disclosures and warning
requirements with respect to the advertising for certain products. Representatives within government bodies,
both domestic and foreign, continue to initiate proposals to ban the advertising of specific products and to
impose taxes on or deny deductions for advertising, which, if successful, may have an adverse effect on
advertising expenditures and consequently our revenues.
Item 1B. Unresolved Staff Comments
None.
10
16. Item 2. Properties
Substantially all of our office space is leased from third parties. Several of our leases will be expiring
within the next few months, while the remainder will be expiring within the next 17 years. Certain leases are
subject to rent reviews or contain escalation clauses, and certain of our leases require the payment of various
operating expenses, which may also be subject to escalation. Physical properties include leasehold
improvements, furniture, fixtures and equipment located in our offices. We believe that facilities leased or
owned by us are adequate for the purposes for which they are currently used and are well maintained. See
Note 17 to the Consolidated Financial Statements for a discussion of our lease commitments.
Item 3. Legal Proceedings
Information about our legal proceedings is set forth in Note 17 to the Consolidated Financial Statements
included in this report.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of Interpublic
Name Age Office
Michael I. Roth(1) . . . . . . . . . . . . . . . . . 62 Chairman of the Board and Chief Executive Officer
Nicholas J. Camera . . . . . . . . . . . . . . . . 61 Senior Vice President, General Counsel and Secretary
Christopher F. Carroll . . . . . . . . . . . . . . 41 Senior Vice President, Controller and Chief Accounting
Officer
John J. Dooner, Jr. . . . . . . . . . . . . . . . . 59 Chairman and CEO of McCann Worldgroup
Thomas A. Dowling . . . . . . . . . . . . . . . 56 Senior Vice President, Chief Risk Officer
Philippe Krakowsky . . . . . . . . . . . . . . . . 45 Executive Vice President, Strategy and Corporate Relations
Frank Mergenthaler . . . . . . . . . . . . . . . . 47 Executive Vice President and Chief Financial Officer
Timothy A. Sompolski. . . . . . . . . . . . . . 55 Executive Vice President, Chief Human Resources Officer
(1)
Also a Director
There is no family relationship among any of the executive officers.
Mr. Roth became our Chairman of the Board and Chief Executive Officer, effective January 19, 2005.
Prior to that time, Mr. Roth served as our Chairman of the Board from July 13, 2004 to January 2005.
Mr. Roth served as Chairman and Chief Executive Officer of The MONY Group Inc. from February 1994 to
June 2004. Mr. Roth has been a member of the Board of Directors of Interpublic since February 2002. He is
also a director of Pitney Bowes Inc. and Gaylord Entertainment Company.
Mr. Camera was hired in May 1993. He was elected Vice President, Assistant General Counsel and
Assistant Secretary in June 1994, Vice President, General Counsel and Secretary in December 1995, and
Senior Vice President, General Counsel and Secretary in February 2000.
Mr. Carroll was named Senior Vice President, Controller and Chief Accounting Officer in April 2006.
Prior to joining us, Mr. Carroll served as Senior Vice President and Controller of McCann Worldgroup from
November 2005 to March 2006. Mr. Carroll served as Chief Accounting Officer and Controller at Eyetech
Pharmaceuticals from June 2004 to October 2005. Prior to that time, Mr. Carroll served as Chief Accounting
Officer and Controller at MIM Corporation from January 2003 to June 2004 and served as a Financial Vice
President at Lucent Technologies, Inc. from July 2001 to January 2003.
Mr. Dooner became Chairman and Chief Executive Officer of the McCann Worldgroup, effective
February 27, 2003. Prior to that time, Mr. Dooner served as Chairman of the Board, President and Chief
11
17. Executive Officer of Interpublic, from December 2000 to February 2003, and as President and Chief Operating
Officer of Interpublic from April 2000 to December 14, 2000.
Mr. Dowling was hired in January 2000 as Vice President and General Auditor. He was elected Senior
Vice President, Financial Administration of Interpublic in February 2001, and Senior Vice President, Chief
Risk Officer in November 2002. Prior to joining us, Mr. Dowling served as Vice President and General
Auditor for Avon Products, Inc. from April 1992 to December 1999.
Mr. Krakowsky was hired in January 2002 as Senior Vice President, Director of Corporate
Communications. He was elected Executive Vice President, Strategy and Corporate Relations in December
2005. Prior to joining us, he served as Senior Vice President, Communications Director for Young & Rubicam
from August 1996 to December 2000. During 2001, Mr. Krakowsky was complying with the terms of a non-
competition agreement entered into with Young & Rubicam.
Mr. Mergenthaler was hired in August 2005 as Executive Vice President and Chief Financial Officer.
Prior to joining us, he served as Executive Vice President and Chief Financial Officer for Columbia House
Company from July 2002 to July 2005. Mr. Mergenthaler served as Senior Vice President and Deputy Chief
Financial Officer for Vivendi Universal from December 2001 to March 2002. Prior to that time
Mr. Mergenthaler was an executive at Seagram Company Ltd. from November 1996 to December 2001.
Mr. Sompolski was hired in July 2004 as Executive Vice President, Chief Human Resources Officer. Prior
to joining us, he served as Senior Vice President of Human Resources and Administration for Altria Group
from November 1996 to January 2003.
12
18. PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Price Range of Common Stock
Our common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol
“IPG.” The following table provides the high and low closing sales prices per share for the periods shown
below as reported on the NYSE. At February 15, 2008, there were 24,025 registered holders of our common
stock.
NYSE Sale Price
Period High Low
2007:
Fourth Quarter . . .................................................. .... $10.55 $ 8.10
Third Quarter . . .................................................. .... $11.61 $ 9.75
Second Quarter . .................................................. .... $12.97 $11.31
First Quarter . . . .................................................. .... $13.81 $12.17
2006:
Fourth Quarter . . .................................................. .... $12.35 $ 9.79
Third Quarter . . .................................................. .... $ 9.98 $ 7.86
Second Quarter . .................................................. .... $10.04 $ 8.35
First Quarter . . . .................................................. .... $10.56 $ 9.51
Dividend Policy
No dividend has been paid on our common stock since the fourth quarter of 2002. Our future dividend
policy will be determined on a quarter-by-quarter basis and will depend on earnings, financial condition,
capital requirements and other factors. Our future dividend policy may also be influenced by the terms of
certain of our outstanding securities. The terms of our outstanding series of preferred stock do not permit us to
pay dividends on our common stock unless all accumulated and unpaid dividends have been or
contemporaneously are declared and paid or provision for the payment thereof has been made. In the event we
pay dividends on our common stock, holders of our 4.50% Convertible Senior Notes will be entitled to
additional interest and the conversion terms of our 4.75% Convertible Senior Notes, 4.25% Convertible Senior
Notes and our Series B Convertible Preferred Stock, and the exercise prices of our outstanding warrants, will
be adjusted (see Notes 10, 11 and 12 to the Consolidated Financial Statements).
Transfer Agent and Registrar for Common Stock
The transfer agent and registrar for our common stock is:
BNY Mellon Shareowner Services, Inc.
480 Washington Boulevard
29th Floor
Jersey City, NJ 07310
Tel: (877) 363-6398
Sales of Unregistered Securities
Not applicable
13
19. Repurchase of Equity Securities
The following table provides information regarding our purchases of equity securities during the fourth
quarter of 2007:
Maximum
Number
of Shares
Average Total Number of Shares that May Yet Be
Total Number Price Purchased as Part of Purchased
of Shares Paid per Publicly Announced Under the Plans
Share(2)
Purchased Plans or Programs or Programs
October 1-31 . . . . . . . . . . . . . . . . . . 34,750 $10.08 — —
November 1-30. . . . . . . . . . . . . . . . . 38,075 $ 9.35 — —
December 1-31 . . . . . . . . . . . . . . . . . 29,293 $ 8.79 — —
Total(1) . . . . . . . . . . . . . . . . . . . . . . . 102,118 $ 9.44 — —
(1)
Consists of restricted shares of our common stock withheld under the terms of grants under employee stock
compensation plans to offset tax withholding obligations that occurred upon vesting and release of restricted
shares during each month of the fourth quarter of 2007 (the “Withheld Shares”).
(2)
The average price per month of the Withheld Shares was calculated by dividing the aggregate value of the
tax withholding obligations for each month by the aggregate number of shares of our common stock
withheld each month.
14
21. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(Amounts in Millions, Except Per Share Amounts)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) is intended to help you understand The Interpublic Group of Companies, Inc. and its subsidiaries
(the “Company”, “Interpublic”, “we”, “us” or “our”). MD&A should be read in conjunction with our
consolidated financial statements and the accompanying notes. Our MD&A includes the following sections:
EXECUTIVE SUMMARY provides an overview of our results of operations and liquidity.
CRITICAL ACCOUNTING ESTIMATES provides a discussion of our accounting policies that
require critical judgment, assumptions and estimates.
RESULTS OF OPERATIONS provides an analysis of the consolidated and segment results of
operations for 2007 compared to 2006 and 2006 compared to 2005.
LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash flows, funding
requirements, contractual obligations, financing and sources of funds.
OTHER MATTERS provides a discussion of other significant items which may impact our financial
statements.
RECENT ACCOUNTING STANDARDS, by reference to Note 18 to the Consolidated Financial
Statements, provides a description of accounting standards which we have not yet been required to
implement and may be applicable to our future operations.
EXECUTIVE SUMMARY
We are one of the world’s premier advertising and marketing services companies. Our agency brands
deliver custom marketing solutions to many of the world’s largest marketers. Our companies cover the
spectrum of marketing disciplines and specialties, from consumer advertising and direct marketing to mobile
and search engine marketing. Major global brands include Draftfcb, FutureBrand, GolinHarris International,
Initiative, Jack Morton Worldwide, Lowe Worldwide (“Lowe”), MAGNA Global, McCann Erickson,
Momentum, MRM, Octagon, Universal McCann and Weber Shandwick. Leading domestic brands include
Campbell-Ewald, Carmichael Lynch, Deutsch, Hill Holliday, Mullen and The Martin Agency.
The work we produce for our clients is specific to their unique needs. Our solutions vary from project-
based activity involving one agency and its client to long-term, fully-integrated campaigns created by a group
of our companies working together on behalf of a client. With offices in over 100 countries, we can operate in
a single region or align work globally across all major world markets. Our revenue is directly dependent upon
the advertising, marketing and corporate communications requirements of our clients and tends to be higher in
the second half of the calendar year as a result of the holiday season and lower in the first half as a result of
the post-holiday slow-down in client activity.
Our strategy is focused on improving our organic revenue growth and operating income. We are working
to achieve significant improvements in our organic revenue growth and operating margins, with our ultimate
objective to be fully competitive with our industry peer group on both measures.
We analyze period-to-period changes in our operating performance by determining the portion of the
change that is attributable to foreign currency rates and the change attributable to the net effect of acquisitions
and divestitures, with the remainder considered the organic change. For purposes of analyzing this change,
acquisitions and divestitures are treated as if they occurred on the first day of the quarter during which the
transaction occurred.
We have strategically realigned a number of our capabilities to promote revenue growth. For example, we
have combined accountable marketing and consumer advertising to form the global offering Draftfcb and
16
22. Management’s Discussion and Analysis of Financial Condition
and Results of Operations — (Continued)
(Amounts in Millions, Except Per Share Amounts)
implemented a differentiated approach to media by aligning our largest media assets with our global brand
agencies. We continue to develop our capacity in strategically critical areas, notably digital, marketing services
and media, that we expect will drive future revenue growth. The digital component of our business continues
to evolve and is increasingly vital to all of our agencies. In order to grow with our clients, we have
accelerated our investment in talent, professional development and technology throughout the organization.
To further improve our operating margin we continue to focus on the following areas:
• Actively managing staff costs in non-revenue supporting roles;
• Improving financial systems and back-office processing;
• Reducing organizational complexity and divesting non-core and underperforming businesses; and
• Improving our real estate utilization.
Although the U.S. Dollar is our reporting currency, a substantial portion of our revenues is generated in
foreign currencies. Therefore, our reported results are affected by fluctuations in the currencies in which we
conduct our international businesses. The weakening of the U.S. Dollar against the currencies of many
countries in which we operate contributed to higher revenues and operating expenses. In particular, during
2007 and 2006, the U.S. Dollar was weaker against the Euro, Pound Sterling, Brazilian Real and Canadian
Dollar compared to 2006 and 2005, respectively. The 2007 impact was also due to the strength of the
Australian Dollar compared to 2006. The average value of the Euro and Pound Sterling, currencies in which
the majority of our international operations are conducted, each strengthened approximately 9% against the
U.S. Dollar during 2007. Foreign currency variations resulted in increases of approximately 3% in revenues,
salaries and related expenses and office and general expenses in 2007 compared to 2006.
As discussed in more detail in this MD&A, for 2007 compared to 2006:
• Total revenue increased by 5.9%.
• Organic revenue increase was 3.8%, primarily due to higher revenue from existing clients.
• Operating margin was 5.3% in 2007, compared to 1.7% in 2006. Salaries and related expenses as a
percentage of revenue was 63.2% in 2007 compared to 63.7% in 2006. Office and general expenses as
a percentage of revenue was 31.2% in 2007, compared to 33.6% in 2006.
• Operating expenses increased $125.1.
• Total salaries and related expenses increased 4.9%, primarily to support the growth of our business. The
organic increase was 2.7%.
• Total office and general expenses decreased 1.6% mainly due to improvements in our financial systems,
back-office processes and internal controls, which resulted in lower professional fees. The organic
decrease was 2.7%.
• Restructuring and other reorganization-related charges reduced operating income by $25.9 in 2007 and
$34.5 in 2006. The majority of charges in 2007 related to a restructuring plan at Lowe and the
reorganization of our media businesses.
• As of December 31, 2007, cash and cash equivalents and marketable securities increased $80.3
primarily due to improved operating results and proceeds from the sale of businesses and investments,
partially offset by working capital usage, acquisitions, including deferred payments, and capital
expenditures.
• We have successfully completed our 18-month plan to remediate the remainder of our previous material
weaknesses as of December 31, 2007. See Item 9A, Controls and Procedures, for further discussion.
17
23. Management’s Discussion and Analysis of Financial Condition
and Results of Operations — (Continued)
(Amounts in Millions, Except Per Share Amounts)
CRITICAL ACCOUNTING ESTIMATES
Our Consolidated Financial Statements are prepared in accordance with generally accepted accounting
principles in the United States of America. Preparation of the Consolidated Financial Statements and related
disclosures requires us to make judgments, assumptions and estimates that affect the amounts reported and
disclosed in the accompanying financial statements and notes. We believe that of our significant accounting
policies, the following critical accounting estimates involve management’s most difficult, subjective or
complex judgments. We consider these accounting estimates to be critical because changes in the underlying
assumptions or estimates have the potential to materially impact our financial statements. Management has
discussed with our Audit Committee the development, selection, application and disclosure of these critical
accounting estimates. We regularly evaluate our judgments, assumptions and estimates based on historical
experience and various other factors that we believe to be relevant under the circumstances. Actual results may
differ from these estimates under different assumptions or conditions.
Revenue Recognition
Our revenues are primarily derived from the planning and execution of advertising programs in various
media and the planning and execution of other marketing and communications programs. Most of our client
contracts are individually negotiated and accordingly, the terms of client engagements and the bases on which
we earn commissions and fees vary significantly. Our client contracts are complex arrangements that may
include provisions for incentive compensation and govern vendor rebates and credits. Our largest clients are
multinational entities and, as such, we often provide services to these clients out of multiple offices and across
various agencies. In arranging for such services to be provided, it is possible for a global, regional and local
agreement to be initiated. Multiple agreements of this nature are reviewed by legal counsel to determine the
governing terms to be followed by the offices and agencies involved. Critical judgments and estimates are
involved in determining both the amount and timing of revenue recognition under these arrangements.
Revenue for our services is recognized when all of the following criteria are satisfied: (i) persuasive
evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectibility is reasonably
assured; and (iv) services have been performed. Depending on the terms of a client contract, fees for services
performed can be recognized in three principal ways: proportional performance, straight-line (or monthly
basis) or completed contract. See Note 1 to the Consolidated Financial Statements for further discussion.
Depending on the terms of the client contract, revenue is derived from diverse arrangements involving
fees for services performed, commissions, performance incentive provisions and combinations of the three.
Commissions are generally earned on the date of the broadcast or publication. Contractual arrangements with
clients may also include performance incentive provisions designed to link a portion of the revenue to our
performance relative to both qualitative and quantitative goals. Performance incentives are recognized as
revenue for quantitative targets when the target has been achieved and for qualitative targets when
confirmation of the incentive is received from the client. The classification of client arrangements to determine
the appropriate revenue recognition involves judgments. If the judgments change there can be a material
impact on our financial statements, and particularly on the allocation of revenues between periods. Incremental
direct costs incurred related to contracts where revenue is accounted for on a completed contract basis are
generally expensed as incurred. There are certain exceptions made for significant contracts or for certain
agencies where the majority of the contracts are project-based and systems are in place to properly capture
appropriate direct costs.
Substantially all of our revenue is recorded as the net amount of our gross billings less pass-through
expenses charged to a client. In most cases, the amount that is billed to clients significantly exceeds the
amount of revenue that is earned and reflected in our financial statements, because of various pass-through
expenses such as production and media costs. In compliance with Emerging Issues Task Force (“EITF”) Issue
18
24. Management’s Discussion and Analysis of Financial Condition
and Results of Operations — (Continued)
(Amounts in Millions, Except Per Share Amounts)
No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, we assess whether our agency or
the third-party supplier is the primary obligor. We evaluate the terms of our client agreements as part of this
assessment. In addition, we give appropriate consideration to other key indicators such as latitude in
establishing price, discretion in supplier selection and credit risk to the vendor. Because we operate broadly as
an advertising agency, based on our primary lines of business and given the industry practice to generally
record revenue on a net versus gross basis, we believe that there must be strong evidence in place to overcome
the presumption of net revenue accounting. Accordingly, we generally record revenue net of pass-through
charges as we believe the key indicators of the business suggest we generally act as an agent on behalf of our
clients in our primary lines of business. In those businesses (primarily sales promotion, event, sports and
entertainment marketing and corporate and brand identity services) where the key indicators suggest we act as
a principal, we record the gross amount billed to the client as revenue and the related costs incurred as office
and general expenses. Revenue is reported net of taxes assessed by governmental authorities that are directly
imposed on our revenue-producing transactions.
The determination as to whether revenue in a particular line of business should be recognized net or gross
involves complex judgments. If we make these judgments differently, it could significantly affect our financial
performance. If it were determined that we must recognize a significant portion of revenues on a gross basis
rather than a net basis, it would positively impact revenues, have no impact on our operating income and have
an adverse impact on operating margin.
We receive credits from our vendors and media outlets for transactions entered into on behalf of our
clients that, based on the terms of our contracts and local law, are either remitted to our clients or retained by
us. If amounts are to be passed through to clients they are recorded as liabilities until settlement or, if retained
by us, are recorded as revenue when earned. Negotiations with a client at the close of a current engagement
could result in either payments to the client in excess of the contractual liability or in payments less than the
contractual liability. These items, referred to as concessions, relate directly to the operations of the period and
are recorded as operating expense or income. Concession income or expense may also be realized in
connection with settling vendor discount or credit liabilities that were established as part of the restatement we
presented in our Annual Report on Form 10-K for the year ended December 31, 2004 that we filed in
September 2005 (the “2004 Restatement”). In these situations, and given the historical nature of these
liabilities, we have recorded such items as other income or expense in order to prevent distortion of current
operating results. See Notes 1 and 4 to the Consolidated Financial Statements for further discussion.
Stock-Based Compensation
We account for stock-based compensation in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”). SFAS 123R requires
compensation costs related to share-based transactions, including employee stock options, to be recognized in
the financial statements based on fair value. Compensation cost is generally recognized ratably over the
requisite service period, net of estimated forfeitures.
We use the Black-Scholes option-pricing model to estimate the fair value of options granted, which
requires the input of subjective assumptions including the option’s expected term and the price volatility of the
underlying stock. Changes in the assumptions can materially affect the estimate of fair value and our results of
operations could be materially impacted. The expected volatility factor is based on a blend of historical
volatility of our common stock and implied volatility of our tradable forward put and call options to purchase
and sell shares of our common stock. The expected term is based on the average of an assumption that
outstanding options are exercised upon achieving their full vesting date and will be exercised at the midpoint
between the current date (i.e., the date awards have been ratably vested through) and their full contractual
term. Additionally, we calculate an estimated forfeiture rate which impacts our recorded expense. See Note 14
to the Consolidated Financial Statements for further discussion.
19
